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Subject:  Re: Closed end funds Date:  1/26/2011  10:42 AM
Author:  JustMee01 Number:  32170 of 36468


IMO the main point was hit on earlier. (If you understand all that follows, excuse me. But, it sounds like you migth not.) You're lumping together Net Asset Value (NAV) and Share Value. That's probably because you're more used to open-ended mutual funds.

With an open-ended mutual fund, the price you pay is the NAV. Whatever a share of the underlying securities is WORTH marked to market (the NAV), that's what you pay directly to the fund manager. Then, when that cash comes in, they buy more securities. Hence the term "open-ended". New cash buys new securities, and the process can go on indefinitely. Correspondingly, when you make a redemption, the management company sends you cash, selling as necessary to cover those redemptions.

Closed-end funds don't work like that. They're investment trusts. The management company takes a lump sum and buys the entire port. That's a one-time event (although there are exceptions and they may borrow money to supplement cash in some cases). Those securities are assembled in a trust, a prospectus is written and shares of that trust are sold to individual shareholders. After that point in time, shares in the fund are NOT sold by the company. The shares you bought were bought from one of the current holders, just like any other stock. They are exchange traded. Because of this fact, CEFs don't trade at the NAV of the underlying securities. They trade by the same bid ask process as any other market traded security. So, disparities between price and NAV can occur, unlike an open-ended fund. This disparity can at times be a significant advantage, as you can often buy CEFs at a discount to their underlying NAV.

In this case, EVV's NAV is not eroding. It's just that people are selling. Thus, it's pretty hard to guess why. It's just a temporary(?) disconnect between NAV and share price due to simple buy-sell pressures. There are more sellers than buyers, and with CEFs, that's what drives pricing, unlike open-ended funds, where NAV drives pricing.

So, in a nutshell, since NAV isn't impacted, any opinion on why pricing is falling is pure conjecture.

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